(131) INOCENCIA DELUAO and FELIPE DELUAO v NICANOR CASTEEL and JUAN filed an action in the CFI Davao

n the CFI Davao for specific performance and damages against

DEPRA December 24, 1968 Nicanor Casteel and Juan Depra (who, they alleged, instigated Casteel to violate
TOPIC: Object Certain or Lawful Subject Matter his contract). The Deluaos also filed an ex parte motion for the issuance of a
Summary: preliminary injunction. The lower court granted the motion, and, two days later,
Nicanor Casteel filed a fishpond application for a big tract of swampy land in it issued a preliminary mandatory injunction addressed to Casteel.
Sitio of Malalag. Pending its resolution, several applications were submitted by
other persons. One of them was Felipe Deluao who filed his own fishpond CFI Davao ruled in favor of Deluao, declared permanently the prohibition
application for the area covered by Casteel's application. injunction, and ordered Casteel to deliver to the Deluao the possession and
administration of of the fishpond in question with all the improvements.
Upon learning that portions of the area applied for by him were already -RATIO: the "contract of service"created a contract of co-ownership and
occupied by rival applicants, Casteel immediately filed the corresponding partnership over the fishpond in question.
protests (which became DANR Case 353 and DANR Case 353-B).
Dissatisfied with the said ruling, Casteel appealed to the CA which certified the
The Director of Fisheries rejected Casteel's application. Failing to secure a case to the SC for final determination on the ground that it involves only
favorable resolution of his MR, Casteel appealed to the Secretary of Agriculture questions of law.
and Natural Resources.
SC set aside the decision of the CFI.
Meanwhile, Inocencia Deluao (wife of Felipe Deluao) and Nicanor Casteel (1) The evidence preponderates in favor of the view that the initial intention of
executed a contract denominated a "contract of service" whereby: the parties was not to form a co-ownership but to establish a partnership.
- Delau will finance the sum of P27k for the construction and improvements of a - the contract shows Inocencia Deluao as capitalist partner and Casteel as
fishpond at Barrio Malalag. industrial partner.
- Casteel will be responsible for the construction and improvements - exchanges of letters between the parties reveal the continuing intent to divide
- Delau will be the administrator of the same she having financed the the fishpond
construction and improvement of said fishpond; (2) This partnership continued until the decisions in DANR Cases 353 and 353-B
- Casteel will be the Manager and sole buyer of all the produce of the fish that were issued. This development, by itself, brought about the dissolution of the
will be produced from said fishpond partnership. Several provisions of law prohibit the holder of a fishpond permit
from transferring or subletting the fishpond granted to him. These made the
On Nov 29, 1949 the Director of Fisheries rejected the application filed by Felipe. continuation of the partnership unlawful and therefore caused its ipso facto
dissolution. Moreover, subsequent events likewise reveal the intent of both
On Sept 15, 1950 the Secretary of Agriculture and Natural Resources ruled in parties to terminate the partnership because each refused to share the fishpond
favor of Casteel in DANR Case 353 and Case 353-B, revoking and denying the with the other.
permits and applications of the other claimants, while granting the application IN sum, the contract entered into by the parties was one of partnership,
of Casteel. which can be divided into two parts namely, a contract of partnership to
exploit the fishpond pending its award to either Felipe Deluao or Nicanor
Casteel then forbade Inocencia Deluao from further administering the fishpond. Casteel, and a contract of partnership to divide the fishpond between them after
such award. The first is valid, the second illegal.
Alleging violation of the contract of service, Felipe Deluao and Inocencia Deluao
CASTRO, J. decisions in DANR Case 353 and Case 353-B. Both in favor of Casteel.
FACTS The dispositive portion of Case 353:
On 4 separate occasions, Nicanor Casteel filed a fishpond application for a big - In view of all the foregoing considerations, Fp. A. No. 661 (now Fp. A. No. 1717) of
tract of swampy land in Sitio of Malalag. No action was taken on his first 2 Nicanor Casteel should be, as hereby it is, reinstated and given due course for the area
applications. His 3rd was disapproved. Casteel filed a MR. But upon the advise of a indicated in the sketch drawn at the back of the last page hereof; and Fp. A. No. 762 of
district forester of Davao City, he filed another fishpond application. Victorio D. Carpio shall remain rejected.
The dispositive portion of Case 353-B:
Meanwhile, several applications were submitted by other persons for portions of - WHEREFORE, Fishpond Permit No. F-289-C of Leoncio Aradillos and Fishpond Permit No.
the area covered by Casteel's application. One of them was Felipe Deluao who F-539-C of Alejandro Cacam, should be, as they are hereby cancelled and revoked;
filed his own fishpond application on Nov 17, 1948 for the area covered by Nicanor Casteel is required to pay the improvements introduced thereon by said
Casteel's application. permittees xxx.

Upon learning that portions of the area applied for by him were already Sometime in January 1951 Nicanor Casteel forbade Inocencia Deluao from
occupied by rival applicants, Casteel immediately filed the corresponding further administering the fishpond, and ejected the latter's representative Jesus
protests (which became DANR Case 353 and DANR Case 353-B). Donesa, from the premises.

However, despite the finding made in the investigation of the administrative Alleging violation of the contract of service, Felipe Deluao and Inocencia Deluao
cases that Casteel had already introduced improvements on portions of the area filed an action in the CFI Davao for specific performance and damages against
applied for by him in the form of dikes, fishpond gates, clearings, etc., the Nicanor Casteel and Juan Depra (who, they alleged, instigated Casteel to violate
Director of Fisheries nevertheless rejected Casteel's application, required him to his contract), praying inter alia, (a) that Casteel be ordered to respect and abide
remove all the improvements which he had introduced on the land, and ordered by the terms and conditions of said contract and that Inocencia Deluao be
that the land be leased through public auction. Failing to secure a favorable allowed to continue administering the said fishpond and collecting the proceeds
resolution of his MR of the Director's order, Casteel appealed to the Secretary of from the sale of the fishes caught from time to time; and (b) that the defendants
Agriculture and Natural Resources. be ordered to pay jointly and severally to plaintiffs the sum of P20,000 in
damages.
On Nov 25, 1949 Inocencia Deluao (wife of Felipe Deluao) and Nicanor Casteel
executed a contract denominated a "contract of service" whereby: On April 18, 1951 the Deluaos filed an ex parte motion for the issuance of a
- Delau will finance the sum of P27k for the construction and improvements of a preliminary injunction. The lower court granted the motion, and, two days later,
fishpond at Barrio Malalag. it issued a preliminary mandatory injunction addressed to Casteel,
- Casteel will be responsible for the construction and improvements
- Delau will be the administrator of the same she having financed the CFI Davao ruled in favor of Deluao, declared permanently the prohibition
construction and improvement of said fishpond; injunction, and ordered Casteel to deliver the claimant the possession and
- Casteel will be the Manager and sole buyer of all the produce of the fish that administration of of the fishpond in question with all the improvements
will be produced from said fishpond within it; and, pay Deluao damages.
On Nov 29, 1949 the Director of Fisheries rejected the application filed by Felipe. -RATIO: the "contract of service"created a contract of co-ownership and
partnership between Inocencia Deluao and the appellant over the fishpond in
On Sept 15, 1950 the Secretary of Agriculture and Natural Resources issued question.
 prohibited them from doing so. Thus, rather than let the fishpond remain idle
Dissatisfied with the said ruling, Casteel appealed to the CA which certified the they cultivated it.
case to the SC for final determination on the ground that it involves only
questions of law. The evidence preponderates in favor of the view that the initial intention of the
parties was not to form a co-ownership but to establish a partnership
Whether the lower court erred in ordering the issuance ex parte of a writ Inocencia Deluao as capitalist partner and Casteel as industrial partner the
of preliminary injunction against Casteel, and in not dismissing the ultimate undertaking of which was to divide into two equal parts such portion of
Deluaos' complaint. the fishpond as might have been developed by the amount extended by the
Held: Yes. Deluaos, with the further provision that Casteel should reimburse the expenses
Too well-settled to require any citation of authority is the rule that everyone is incurred by the them over one-half of the fishpond that would pertain to him.
conclusively presumed to know the law. It must be assumed, conformably to This can be gleaned, among others, from the letter of Casteel to Felipe Deluao on
such rule, that the parties entered into the so-called "contract of service" November 15, 1949, which states, inter alia:
cognizant of the mandatory and prohibitory laws governing the filing of
applications for fishpond permits. And since they were aware of the said laws, it ... [W]ith respect to your allowing me to use your money, same will redound to your
must likewise be assumed in fairness to the parties that they did not intend benefit because you are the ones interested in half of the work we have done so far,
to violate them. This view must perforce negate the Deluaos' allegation that the besides I did not insist on our being partners in my fishpond permit, but it was you
contract created a contract of co-ownership between the parties over the "Tatay" Eping the one who wanted that we be partners and it so happened that we
disputed fishpond. Were we to admit the establishment of a co-ownership became partners because I am poor, but in the midst of my poverty it never occurred to
violative of the prohibitory laws which will hereafter be discussed, we shall be me to be unfair to you. Therefore so that each of us may be secured, let us have a
compelled to declare altogether the nullity of the contract. This would certainly document prepared to the effect that we are partners in the fishpond that we caused to
not serve the cause of equity and justice, considering that rights and obligations be made here in Balasinon, but it does not mean that you will treat me as one of your
have already arisen between the parties. We shall therefore construe the "Bantay" (caretaker) on wage basis but not earning wages at all, while the truth is that
contract as one of partnership, divided into two parts namely, a contract of we are partners. In the event that you are not amenable to my proposition and consider
partnership to exploit the fishpond pending its award to either Felipe Deluao or me as "Bantay" (caretaker) instead, do not blame me if I withdraw all my cases and be
Nicanor Casteel, and a contract of partnership to divide the fishpond between left without even a little and you likewise.
them after such award. The first is valid, the second illegal.
Pursuant to the foregoing suggestion of Casteel that a document be drawn
It is well to note that when Inocencia Deluao and Casteel entered into the so- evidencing their partnership, Inocencia Deluao and Casteel executed the
called "contract of service", there were two pending applications over the contract, which, although denominated a "contract of service," was actually the
fishpond. One was Casteel's which was appealed by him to the Secretary of memorandum of their partnership agreement. That it was not a contract of the
Agriculture and Natural Resources. The other was Felipe Deluao's application services was admitted by the Deluaos themselves in their letter to Casteel dated
over the same area which was likewise rejected by the Director of Fisheries. Dec 19, 1949 wherein they stated that they did not employ him.
Clearly, although the fishpond was then in the possession of Casteel, neither he
nor, Felipe Deluao was the holder of a fishpond permit over the area. But be that Further exchanges of letters between the parties reveal the continuing intent to
as it may, they were not however precluded from exploiting the fishpond divide the fishpond. In a letter, dated March 24, 1950, Casteel suggested that
pending resolution of Casteel's appeal or the approval of Deluao's application they divide the fishpond and the remaining capital, and offered to pay the
over the same area whichever event happened first. No law, rule or regulation Deluaos a yearly installment of P3,000 presumably as reimbursement for the
expenses of the Deluaos for the development and improvement of the one-half approval of this Office."
that would pertain to Casteel. Two days later, the Felipe Deluao replied,
expressing his concurrence in Casteel's suggestion and advising the latter to ask Sec. 40 of Commonwealth Act 141, otherwise known as the Public Land Act,
for a reconsideration of the order of the Director of Fisheries disapproving likewise provides that
Casteel's application, so that if a favorable decision was secured, then they The lessee shall not assign, encumber, or sublet his rights without the consent of the
would divide the area. Secretary of Agriculture and Commerce, and the violation of this condition shall avoid
the contract; Provided, That assignment, encumbrance, or subletting for purposes of
Apparently relying on the partnership agreement, the Felipe Deluao saw no speculation shall not be permitted in any case: Provided, further, That nothing contained
further need to maintain his petition for the reinvestigation of Casteel's in this section shall be understood or construed to permit the assignment, encumbrance,
application. Thus by letter dated March 15, 1950 addressed to the Secretary of or subletting of lands leased under this Act, or under any previous Act, to persons,
Agriculture and Natural Resources, he withdrew his petition on the alleged corporations, or associations which under this Act, are not authorized to lease public
ground that he was no longer interested in the area, but stated however that he lands.
wanted his interest to be protected and his capital to be reimbursed by the
highest bidder. Finally, section 37 of Administrative Order No. 14 of the Secretary of Agriculture
and Natural Resources issued in August 1937, prohibits a transfer or sublease
The arrangement under the so-called "contract of service" continued until the unless first approved by the Director of Lands and under such terms and
decisions both dated September 15, 1950 were issued by the Secretary of conditions as he may prescribe.
Agriculture and Natural Resources in DANR Cases 353 and 353-B. This
development, by itself, brought about the dissolution of the partnership. Since the partnership had for its object the division into two equal parts of the
Moreover, subsequent events likewise reveal the intent of both parties to fishpond between the appellees and the appellant after it shall have been
terminate the partnership because each refused to share the fishpond with the awarded to the latter, and therefore it envisaged the unauthorized transfer of
other. one-half thereof to parties other than the applicant Casteel, it was dissolved by
the approval of his application and the award to him of the fishpond. The
Art. 1830(3) of the Civil Code enumerates, as one of the causes for the dissolution approval was an event which made it unlawful for the business of the
of a partnership, "... any event which makes it unlawful for the business of the partnership to be carried on or for the members to carry it on in partnership.
partnership to be carried on or for the members to carry it on in partnership."
The approval of Casteel's fishpond application by the decisions in DANR Cases The appellees, however, argue that in approving the appellant's application, the
353 and 353-B brought to the fore several provisions of law which made the Secretary of Agriculture and Natural Resources likewise recognized and/or
continuation of the partnership unlawful and therefore caused its ipso facto confirmed their property right to one-half of the fishpond by virtue of the
dissolution. contract of service, exhibit A. But the untenability of this argument would
readily surface if one were to consider that the Secretary of Agriculture and
Act 4003, known as the Fisheries Act, prohibits the holder of a fishpond permit Natural Resources did not do so for the simple reason that he does not possess
(the permittee) from transferring or subletting the fishpond granted to him, the authority to violate the aforementioned prohibitory laws nor to exempt
without the previous consent or approval of the Secretary of Agriculture and anyone from their operation.
Natural Resources. To the same effect is Condition No. 3 of the fishpond permit
which states that "The permittee shall not transfer or sublet all or any area However, assuming in gratia argumenti that the approval of Casteel's
herein granted or any rights acquired therein without the previous consent and application, coupled with the foregoing prohibitory laws, was not enough to
cause the dissolution ipso facto of their partnership, succeeding events reveal the profits) of Casteel as industrial partner, (e) the share (in the profits) of
the intent of both parties to terminate the partnership by refusing to share the Deluao as capitalist partner, and (d) whether the amounts totalling about
fishpond with the other. P27,000 advanced by Deluao to Casteel for the development and improvement of
the fishpond have already been liquidated. Besides, since the appellee Inocencia
On December 27, 1950 Casteel wrote Inocencia Deluao, expressing his desire to Deluao continued in possession and enjoyment of the fishpond even after it was
divide the fishpond so that he could administer his own share, such division to awarded to Casteel, she did so no longer in the concept of a capitalist partner
be subject to the approval of the Secretary of Agriculture and Natural Resources. but merely as creditor of the appellant, and therefore, she must likewise submit
By letter dated December 29, 1950, Felipe Deluao demurred to Casteel's in the lower court an accounting of the proceeds of the sales of all the fishes
proposition because there were allegedly no appropriate grounds to support the harvested from the fishpond from September 16, 1950 until Casteel shall have
same and, moreover, the conflict over the fishpond had not been finally been finally given the possession and enjoyment of the same. In the event that
resolved. the appellee Deluao has received more than her lawful credit of P27,000 (or
whatever amounts have been advanced to Casteel), plus 6% interest thereon per
Casteel wrote on January 4, 1951 a last letter to the Felipe Deluao wherein the annum, then she should reimburse the excess to the appellant.
former expressed his determination to administer the fishpond himself because
the decision of the Government was in his favor and the only reason why ACCORDINGLY, the judgment of the lower court is set aside. Another judgment
administration had been granted to the Deluaos was because he was indebted to is hereby rendered: (1) dissolving the injunction issued against the appellant, (2)
them. In the same letter, Casteel forbade Felipe Deluao from sending the placing the latter back in possession of the fishpond in litigation, and (3)
couple's encargado, Jesus Donesa, to the fishpond. In reply thereto, Felipe remanding this case to the court of origin for the reception of evidence relative
Deluao wrote a letter dated January 5, 1951 in which he reiterated his refusal to to the accounting that the parties must perforce render in the premises, at the
grant the administration of the fishpond to Casteel, stating as a ground his belief termination of which the court shall render judgment accordingly. The
"that only the competent agencies of the government are in a better position to appellant's counterclaim is dismissed. No pronouncement as to costs.
render any equitable arrangement relative to the present case; hence, any
action we may privately take may not meet the procedure of legal order."

Inasmuch as the erstwhile partners articulated in the aforecited letters their

respective resolutions not to share the fishpond with each other in direct
violation of the undertaking for which they have established their partnership
each must be deemed to have expressly withdrawn from the partnership,
thereby causing its dissolution pursuant to art. 1830(2) of the Civil Code which
provides, inter alia, that dissolution is caused "by the express will of any partner
at any time."

Pursuant to our holding that there was a partnership between the parties for the
exploitation of the fishpond before it was awarded to Casteel, this case should be
remanded to the lower court for the reception of evidence relative to an
accounting from November 25, 1949 to September 15, 1950, in order for the
court to determine (a) the profits realized by the partnership, (b) the share (in